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Volkswagen will spend up to $16.7 billion to compensate US owners and address claims from states, federal regulators and dealers

Volkswagen AG, in another step to move past its costly diesel emissions cheating scandal, has agreed to pay $175 million to US lawyers suing the German automaker on behalf of the owners of 475,000 polluting vehicles, two people briefed on the agreement said on Friday.

In August, the lawyers in the class action litigation sought up to $332.5 million in fees and costs for their work in a $10 billion settlement that gives US owners of 2.0 litre polluting cars the ability to sell back their vehicles to Volkswagen.

The latest deal with the lawyers means VW has now agreed to spend up to $16.7 billion to compensate US owners and address claims from states, federal regulators and dealers arising from the "Dieselgate" scandal.

The resolution of legal fees clears another hurdle as the world's No 2 automaker looks to resolve all of the outstanding aspects of a scandal that disrupted its global business, hurt its reputation and led to the ouster of its CEO last year.

VW in September 2015 admitted using sophisticated secret software in its cars to cheat exhaust emissions tests, with millions of vehicles worldwide affected. The cheating allowed VW's US vehicles sold since 2009 to emit up to 40 times legally allowable pollution levels.

The $175 million includes attorneys' fees and other costs, according to the sources, who spoke on condition of anonymity.

Lawyers for the owners of polluting vehicles and a spokeswoman for Volkswagen declined to comment.

US District Judge Charles Breyer on Tuesday is set to hold a hearing in San Francisco on whether to grant final approval of the vehicle owners' settlement announced in June, which would be the largest-ever automotive buy-back offer in the United States.

VW has agreed to spend up to $10.033 billion to buy back the vehicles and compensate owners.

It may also offer vehicle fixes if regulators approve. Under a timetable announced this summer, regulators could approve a fix for some 2015 VW diesel vehicles as early as next month.

In addition, VW has agreed to pay up to $1.21 billion to compensate US VW brand dealers, pay more than $600 million to 44 US states, spend $2 billion on zero-emission vehicle promotion and infrastructure, and another $2.7 billion to offset diesel pollution.

It still faces billions of dollars in potential fines from the US Justice Department in its criminal probe into VW's cheating scandal, and must resolve the fate of larger vehicles that were not part of the initial $10 billion settlement.

VW and US regulators are in continuing discussions over whether the automaker should agree to buy back 85,000 larger 3.0-liter Porsche, Audi and VW vehicles that also exceeded US emission standards, and whether it should offer additional compensation to those owners.